AirAsia gets FIPB nod for setting up new airline in India

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FIPB clears AirAsia's investment proposal: Sources

NEW DELHI: Foreign Investment Proposal Board (FIPB) has cleared the Tata Sons-AirAsia Joint Venture investment proposal, reported ET Now. According to ET Now's sources at the Finance Ministry there were some ambiguities on whether the revised FDI in aviation rules are applicable to new JVs or only existing companies in the sector.

AirAsia plans to launch a regional airline in India with an initial investment of Rs 800 million ($15 million) to cash in on rising demand for domestic air travel among India's rapidly expanding middle class.

The Aviation Ministry is understood to have expressed its reservations in a note to FIPB stating that the new company should have been formed before seeking the government's nod. The new airline, AirAsia India, will be managed by the Malaysian company and based in the southern Indian city of Chennai.

AirAsia, through its investment arm, will own 49 per cent of the new airline, with Tata Sons Ltd, the holding company of salt-to-software conglomerate Tata group, owning 30 per cent. Arun Bhatia, who owns Telestra Tradeplace, an investment firm, will hold the remainder.

"It's been cleared," said Arvind Mayaram, India's economic affairs secretary, when asked about the deal. "Now they will have to take the necessary licences from the DGCA. They can start operating now once they get the licence." ET Now reported that post clarity on the issue it is noted that no such rule in the FDI in aviation exists which states that the revised rules are applicable only to existing Indian companies in the sector. "This makes the application for AirAsia in line with the rules that are there which is why the FIPB has gone ahead and given its clearance to the investment proposal by AirAsia," said ET Now.

Finance Ministry sources further indicated that the joint venture will now require regulatory permissions from the DGCA and Civil Aviation Ministry. Once the permissions are given, the entity can start operations in India. AirAsia Group CEO Tony Fernandes is keen to kick off his airline in the country as early as May-June instead of his earlier plans towards the year-end.

Commenting on the clearance by FIPB, Nikhil Vora of IDFC Securities said, "AirAsia JV being cleared is a big positive for investors." Vora said that board representation will not be an issue for foreign airlines.

Ajay Prasad, Former Aviation Secretary told ET Now that with Kingfisher Airlines being grounded, there is space for a new airline in the aviation sector. "It sends a signal to other investors that India is a place for investment," he added.

Malaysia's AirAsia, the largest budget carrier in Asia, plans to launch a regional airline in India in a venture with the Tata group. The new airline, AirAsia India, will be managed by the Malaysian company and based in the southern city of Chennai.

Over the weekend, Tata Group patriarch Ratan Tata, who is an avowed aviation buff and whose group is credited with bringing the first airline into the country way back in October 1938, met Ajit Singh, for reportedly discussing the JV plan.

In a related development yesterday, Tony Fernandes said he had chosen the head for the JV.

"I have selected the CEO for AirAsia India. A very smart boy from the South, Madras (Chennai). An amazing CV. Will impress all...," Fernandes tweeted without naming the person.